The intelligent enterprise creating a culture of speedy and efficient decision making

Only 3% of respondents describe their companies as “experts” in using business data to drive better decisions, and only 27% agree that their company makes better, faster business decisio

The intelligent enterprise: creating a culture of speedy and effi cient decision-making is an Economist

Intelligence Unit report sponsored by CSC and Oracle The Economist Intelligence Unit bears sole responsibility for this report The Economist Intelligence Unit’s editorial team conducted the interviews and wrote the report The fi ndings and views expressed in this report do not necessarily refl ect the views

of the sponsor Rob Garretson was the author of the report, and Debra D’Agostino was the editor Mike Kenny was responsible for layout and design Our thanks are due to all of the executives who responded

to the survey

December 2009

as vital ways of creating competitive advantage Yet this endeavour is more easily grasped in theory than

in practice Only 3% of respondents describe their companies as “experts” in using business data to drive better decisions, and only 27% agree that their company makes better, faster business decisions than their main competitors

Business performance is increasingly dependent on a fi rm’s agility and its ability to generate insights regarding the business environment and the consequences of alternative actions Companies that do this are more adaptable to market changes and thus have a better chance of gaining market share from their competitors

The Economist Intelligence Unit survey polled business decision-makers from North America, Western Europe and Asia-Pacifi c across a wide range of industries and company sizes Among the key fi ndings:

l Decision-making is accelerating, and becoming centralised in the C-suite, rather than being pushed out to regions or business units

l Despite the wide recognition that accurate and timely decision-making is crucial, most fi rms’ ability to make good decisions needs improvement

About the survey

This survey included 208 respondents, 21% of whom were CEOs, presidents or managing directors, 45%

held other C-level titles, and 23% were senior

vice-presidents, vice-presidents or directors Thirty-eight percent of respondents were located in North America, 27% in Western Europe and 23% in Asia-Pacifi c, while 29% worked at companies with annual revenue of US$10bn or more and 31% of respondents worked at companies with annual revenue of US$500m or less

l Customer service is a signifi cant trouble spot Information from customer service and support is ranked among the most critical to a company’s business strategy, yet it ranks poorly as a source of good business insight

l Although data-driven decision-making is espoused by the C-suite, formal governance policies

or procedures to ensure the consistency, integrity and accuracy of the data are rare Even fewer companies dedicate resources to information governance, which is key to ensuring that information is properly analysed and transformed into actionable intelligence

Despite the historical tendency for businesses to slow spending and weigh investment decisions more carefully during a recession, our study fi nds that business decision-making is actually accelerating Nearly one-half of all survey respondents (48%) say decision-making has quickened slightly (34%)

or signifi cantly (14%) over the past 12 months, while only 23% say it has slowed slightly (15%) or considerably (8%)

Such a dichotomy is the case at Boekhandels Groep Nederland (BGN), the largest book retailer in the Netherlands with more than 40 stores, 700 employees and around US$273m in revenue in 2008 Although recessionary pressures have made the fi rm more deliberate in its decision-making, “we have had to become faster because of competition and time-to-market pressure,” says Angélique Wouters, the company’s chief digital offi cer

At the same time, companies’ decision-making processes have grown more centralised, defying the perception that faster decision-making stems from fl atter, more decentralised organisational charts Over the past 12 months, decision-making has become more centralised in the C-suite, according to 38%

of respondents, while only 16% agree that it has shifted to business units Asked how they expect the decision-making process to evolve over the next 12 months, the largest proportion of respondents say

it will become even more centralised within the C-suite (32%) And at 37% of fi rms, signifi cant business decisions are made mostly by C-suite executives “We are absolutely centralising our decision-making processes,” says Ms Wouters, adding that in a recession investments and other decisions are scrutinised

High-speed decision-making

Slowed considerably Slowed slightly Neither slowed nor quickened Quickened slightly Quickened significantly Don’t know

Over the past 12 months, how has the speed of decision-making changed at your company? Decision-making has

(% respondents)

Source: Economist Intelligence Unit survey, 2009.

8 15

27

34 14

1

more carefully by senior management and greater emphasis is placed on projects that provide benefi ts across the enterprise rather than individual units

BGN’s addition of Ms Wouters into the fi rm’s four-person executive board (its C-suite equivalent) is part of a broad restructuring to centralise decision-making The move is both enabled by and a response

to “the digitisation of everything,” she says, “whether it’s our core business processes, our systems or our governance.” Among the important decisions taken at the board level was the move to rebrand its once loosely coupled network of local retail stores under the Selexyz name and roll out its web-based

“SmartStore” kiosks throughout the chain More recently, the company has decided to consolidate management, previously decentralised to 15 geographical regions, into its four key market segments—consumer, business, education and digital

It was an integrated team of senior management at Tata Motors that last year helped the giant Indian carmaker blunt the impact of the fi nancial crisis that sent two of the US Big Three carmakers, GM and Chrysler, into bankruptcy When senior executives fi rst saw the indicators of a downturn in October 2008, they took steps quickly to conserve cash and reduce inventories, says Prakash M Telang, Tata’s managing director “We received feedback from the market pretty rapidly So we put an integrated team together, and managed to do two things that seemed to be right.”

Those two steps included cutting production of medium and heavy commercial vehicles as demand fell

by 33% and to align its inventory and dealer stocks with plunging demand Tata also extended supplier payment terms from 45 days to 60 days “We came to the conclusion that this was not a panic reaction on our part, just an extraordinary event that called for an extraordinary response,” explains Mr Telang

He credits the dealer information systems the company has invested in over recent years with providing the critical distress signals from the Indian truck market last October Without the early warning signals, the company’s senior management could not have moved so quickly to boost liquidity and communicate its crisis management plan across the company’s supplier and dealer networks

32

23

9 29 7

38

16

8 35 2

Decision-making has become/will become more centralised within the C-suite Decision-making has shifted/will shift to business units Decision-making has shifted/will shift to regional locations Decision-making has stayed the same

Don’t know

How has the decision-making process at your company changed…

(% respondents)

…within the past 12 months?

…over the next 12 months?

Source: Economist Intelligence Unit survey, 2009.

Accurate and timely decision-making is critical to creating competitive advantage, yet most companies acknowledge that their ability to make good decisions needs improvement Only 3% of respondents describe their companies as “experts” in using business data to drive better decisions, and fewer than one-quarter (24%) rank their fi rms as “advanced practitioners” Moreover, only 27% agree that their company makes better, faster business decisions than their key competitors In fact, 55% say that too much operational information can unnecessarily slow down decision-making.

But the benefi ts of having real-time information to drive decision-making are clear BGN is known for its use of radio-frequency identifi cation (RFID) to create greater visibility throughout its supply chain The tags allow the stores to track the exact location of each book or item in its inventory The ability to pinpoint product location anywhere along its pipeline and to -analyse more precisely sales and customer preferences in relative real time have paid numerous dividends In addition to shaving costs with better inventory management, improving marketing through the use of more timely customer-preference data and creating a more nimble supply chain that helps get high-demand products to market faster, the system has substantially improved customer service Locating a particular book, which previously took fi ve

to six minutes on average, now takes seconds from a self-serve kiosk, improving the customer experience and boosting productivity of store personnel, notes Ms Wouters

But BGN seems to be an exception to the norm For most fi rms, traditional data hoarding and silos still present formidable challenges Lack of collaboration among business units or departments across the

Room for improvement

17 55 24 3

Beginner/laggard Some experience, need improvement Advanced practitioner, some room for improvement Expert, very little room for improvement

How would you rate your company’s use of business information to drive better and faster executive decisions?

(% respondents)

Source: Economist Intelligence Unit survey, 2009.

enterprise is cited by the more than one-half of respondents (51%) as their biggest challenge, followed by inadequate tools for gathering, integrating or analysing operational information (39%), and inconsistent reporting of information among business units, geographies or functions (36%).

Another challenge is the palpable gap between the need and quality of customer service data When asked which areas of the business produce the best business insight, customer support and service is cited by only 10% of respondents, compared with 28% who rank sales and marketing as the best source Yet when asked what type of business information is the most critical to their company’s primary business strategy, customer service ranks second (34%) only to market research (36%) Particularly in a weakened economy, when customer loyalty becomes paramount, this signals a call to action for companies to improve the quality of insights gleaned from the customer service function

Netfl ix’s success is a case in point The California-based DVD rental company ships 2m DVDs to its rental customers each day, 5% of whom receive a delivery survey gauging how quickly they received their new DVD after returning the previous disc, helping Netfl ix to measure customer satisfaction with its delivery speed “We don’t just collect the data and let it fall on the fl oor,” says Andy Rendich, the fi rm’s chief service and DVD operations offi cer “It is scrutinised, analysed and checked six different ways to determine how can we keep improving.”

Finally, inadequate predictive analytics and proactive scenario planning also affect decision-making Only 22% of respondents say they do rigorous and timely scenario planning across the organisation, which helps them be proactive in addressing market changes Retail giants such as US-based Walmart and Tesco in the UK are well known for using predictive analytics to do precise inventory management up and down their supply chains, for example stocking up on popular non-perishables like Pop-Tarts at stores in the path of a hurricane Just this month Netfl ix month famously awarded its US$1m Netfl ix Prize to a team

of researchers who were best able to improve on the company’s predictive software, which recommends movies to subscribers based on their stated preferences Yet most of those surveyed admit that their fi rms still rely on transactional and historical information to make strategic business decisions (33%) or the experience and business acumen of key executives (31%) rather than modelling to predict the impact of key business decisions (12%)

Lack of collaboration among business units or functional departments throughout the organisation Inadequate tools for gathering, integrating, or analysing operational information

Inconsistent reporting of information among business units, geographies or functional operations Lack of accurate, timely or relevant data from across the business

Inadequate training or quantitative expertise among executives and support staff Insufficient support from C-suite executives for business intelligence as a key component of corporate strategy Other

36 30

26 21

4 5

Key to using operating information effectively to drive decision-making, say executives, is to ensure the consistency, integrity and accuracy of the operating data In general, respondents to the survey feel that the information they are getting to make decisions is adequate, although there remains substantial room for improvement Only 16% say their companies have a dedicated information governance offi ce in place, while more than one-half (54%) say information governance is a shared responsibility between information technology (IT) and business functions More than one in fi ve (21%) have no formal policies or procedures for information governance at all

At Netfl ix, data governance is the dedicated responsibility of its fi nancial planning and analysis team

“I want operations people concentrating on operations, and customer service concentrating on customer services,” says Mr Rendich “I don’t want them distracted by the collection of data We have people who are experts and live and breathe data every day—they know where to look for all the holes, and they help

us get great insights from the data, which helps us drive towards success.”

Yet as our survey bears out, Netfl ix is in the minority Although data-driven decision-making enjoys solid C-suite support—84% of survey respondents identify the CEO (55%) or the CFO (29%) as the primary driver of information-based decision-making at their companies—data governance is not a priority at most, even when the value of good operational data is recognised Tata Motors is a prime example “In a large organisation like ours, which is operating in many countries and many geographies, many product sizes, etc., unless we have good-quality data coming in, it’s not going to be easy for us to make the right

Effective governance

Information governance is a shared responsibility among the IT organisation and business functions, and is implemented collaboratively Information governance is strictly an issue for our IT organisation and rarely addressed by line of business management

We have a dedicated information governance office established to address data issues of quality, consistency, data sharing, etc

We have no formal policies or procedures that would constitute information governance Don’t know

Which statement best describes your organisation’s policies and controls for information governance? (eg, data definitions,

access controls, and other procedures intended to ensure the quality, integrity and consistency of information across the enterprise)

(% respondents)

Source: Economist Intelligence Unit survey, 2009.

54 14

16 21 3

CASE STUDY Netfl ix: a data-driven success story

The most severe recession since the Great Depression has yet to be felt at Netfl ix The Internet-based DVD rental company added more than 1.2m subscribers during the fi rst half of this year, and grew revenue and earnings by 21% and 37%, respectively The 12-year-old company now boasts 10.6m subscribers and takes a US$1.5bn bite out of the business of the still larger, but money-losing video rental giant Blockbuster

Much of Netfl ix’s success is attributable to a driven, collaborative approach to decision-making

data-The company famously captures mountains of data

on customers—such as movie preferences, rental patterns and feedback—and analyses that data against information on its inventory and operations to inform decisions ranging from delivery priorities for the most sought after new releases to how many copies of a little-known documentary to buy to match customer demand Its “Cinematch” movie recommendation algorithm not only improves customer service by helping subscribers to discover unknown movies they might like based on their past preferences, but also helps to steer customers to titles that may otherwise remain idle in its distribution centres

“We’ve been very sincere about our desire to collect the right data,” says Andy Rendich, chief service and DVD operations offi cer at Netfl ix “One of the fi rst departments created here was data warehousing, because we knew information was going to be critical

to making decisions in the future.”

Yet there is more to Netfl ix’s success than just number-crunching The company’s collaborative executive culture has helped to prevent the departmental silos that often hinder effective decision-making at so many companies From its monthly day-long executive staff meetings on strategic issues

to the lunch it brings in daily to encourage interactions across departments, Netfi x fosters a culture of open and honest debate and collaboration, Mr Rendich says

“We are loosely coupled, but tightly aligned.”

There may be no more critical example of Netfl ix’s collaborative decision-making than its aborted effort

to introduce a set-top box that would stream movies and TV shows over the Internet onto TV sets The pet project of Netfl ix’s co-founder and CEO, Reed Hastings,

a former engineer, was launched shortly after the company introduced a service in 2007 to stream video from its website to subscriber’s PCs But the project was spun out of Netfl ix just before its planned introduction

in early 2008, largely because of misgivings about entering the unfamiliar hardware business expressed

by other C-suite executives, including Barry McCarthy, the company’s CFO Mr Hastings now acknowledges that he was fi xated with Apple Computer’s success

in selling devices that drive online content, and that getting into the hardware business could have distracted Netfl ix from its core service “I can’t say that throughout our entire history we’ve always been this good,” says Mr Rendich “But we’ve strived continuously to improve and look in the mirror when

we think we’re making a mistake.”

decision,” explains Mr Telang Yet the company has no dedicated governance function, relying instead on

IT personnel working collaboratively with business managers to ensure that data are accurate, timely and complete—as do more than one-half (54%) of the companies surveyed “We don’t have an ombudsman whose job is overlooking everything,” adds Mr Telang